Natural gas prices, pushed by fears of a crumbling economy and slackening energy demand, plunged to fresh lows and took power prices down with them.

The Dow Jones industrial average briefly fell below 8,000 Friday as anxiety trumped a multi-nation bailout to stop the financial meltdown. Investors largely ignored governments' efforts and fled the stock markets and commodities. Oil futures sank to $77.38 a barrel, a price not seen since 13 months ago, and the monthly natural gas contract fell to an annual low of $6.60/MMBtu.

Prices at some Western natural gas trading centers were at six-year lows, such as trades for $1.84/MMBtu for the San Juan Basin and $2 for the Permian Basin. Power prices took notice, falling by as much as $13 since Monday.

In addition to the financial turmoil, natural gas prices were also hammered by higher fuel surpluses brought on by mild weather and lower demand. Inventories rose by 88 Bcf to 3.198 Tcf, leaving stockpiles 2.2 percent higher than the five-year average, the U.S. Energy Information Administration said.

Western stockpiles rose by 9 Bcf to 432 Bcf -- a mark that is 2 percent lower than last year but 4 percent higher than the five-year average.

Meanwhile, rising onshore natural gas production, which is expected to increase by 6.7 percent this year, is offsetting the effects of lower output in the Gulf of Mexico. Over three weeks after Hurricane Ike hit, about 38 percent of the area's natural gas platforms and rigs remain closed, according to the U.S. Minerals Management Service. The region produces 15 percent of the country's natural gas.

But demand will likely continue to fall for natural gas in the coming months if the economy enters a recession, as energy use is typically one of the first things people curtail during economic woes. The EIA estimates natural gas accounts for 40 percent of the industrial sector's energy consumption. The fuel is also used to heat and cool more than half of all American homes. Already large natural gas companies, such as Devon Energy and Chesapeake Energy Corp., have said they will trim their production estimates because of drooping prices and demand.

In addition to falling natural gas prices, sluggish demand and a shot of cool weather are also exerting downward pressure on power prices. Peak electricity use in the Golden State increased from 33,200 MW on Monday to a weekly high of 37,300 MW on Wednesday, before falling back to around 32,000 MW. This weekend, the California Independent System Operator said, power demand is expected to shrink further to around 29,000 MW.

Over the week, average daytime California electricity prices for North of Path 15 and South of Path 15 dropped $12 to $13 to around $48/MWh. Nighttime values fell $5 to $36.87/MWh in the north and $8 to $33.23/MWh in the south.

Palo Verde peak prices tumbled $14 to an average of $38.01/MWh by Friday. Off-peak trades descended by $10 to an average of $25.80/MWh.

At the California-Oregon border, peak prices plummeted $9 to an average of $51.83/MWh while off-peak prices were nearly static (see chart). Average prime Mid-Columbia trades were clipped by $6 down to $49.98/MWh, but off-prime values inexplicably rose $4 to $44.12/MWh.

What's ahead: A drop in the jet stream is funneling cool air and high winds into California and the desert Southwest, AccuWeather said. Winds were as high as 60 mph in California's Central Valley and high desert. Temperatures will dip into the high 60s in San Francisco this weekend, but Los Angeles will continue to see highs in the 90s. In the Northwest, a Pacific storm system has kept temperatures in the high 50s in Seattle and Portland.

Early next week, however, temperatures will perk up to more seasonal levels throughout the West thanks to an arriving band of high pressure. In theory, hotter weather should lift electricity demand and thus power values, but whether the financial markets also show a pulse is anybody's guess
[Kristina Shevory].

Western Electricity Prices
Week's End: October 6 - 10, 2008

Hub

Peak (heavy)

Off-peak (light)

Alberta Pool (C$)

11.32-960.06

7.60-104.13

Mid-Columbia

47.50-57

39.50-46.25

COB

51.50-61.25

37.50-45.50

NP 15

41-61.50

36-44

SP 15

40-62.50

29.75-43

Palo Verde

35-53

19-36.25

Archives of the Western Price Survey for the past year are also available online.

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